In September 2010, the Organization of the Petroleum Exporting Countries (OPEC) marked its 50th anniversary, but most of the world’s leading social, economic and environmental bodies did not join in the celebrations.
The milestone provided what should have been a fitting backdrop for recognition of the very real accomplishments of OPEC’s past and present and the role it is likely to play in the future. The organization’s resources and policies have evolved to the point where it is now an indispensable partner on multiple levels: its determination to maintain security of supply contributes to world economic stability, its dominant position in the energy industry gives it vital influence over measures to protect the environment, and closer coordination with it could help multilateral institutions to better serve human development around the globe.
Despite all that OPEC has done on these and other fronts, the organization’s contributions remain largely unheralded. The mainstream media typically dismisses the group as a crude (in both senses of the word) cartel. This unflattering assessment is broadly shared by everyone from individual consumers of oil products to the heads of states and major corporations.
OPEC’s image problems may stem from its own public relations. For far too long, the organization and its members have been both loath to accept blame for mistakes and, bizarrely, unwilling to trumpet successes. The result was a familiar one to anyone who studies the contemporary Arab world: those who refuse to define themselves are instead defined by various — often hostile — others.

An unfair reputation

OPEC was founded with the overall aim of liberating its member countries’ hydrocarbon assets from foreign domination, thereby making more of the proceeds from their sale available for promoting economic development, providing better education and healthcare for their populations and sharing the wealth with less fortunate peoples.
Admittedly, not all or even most of the organization’s member states have consistently pursued these goals with sufficient rigor. We all know the reputation of the “oil sheikh”, the spoiled prince who squanders millions on a luxurious lifestyle. For decades there was more than a grain of truth to the stereotype.
But it is not within OPEC’s purview to impose standards on the governance of sovereign member states or on the personal behavior of their rulers; its primary task, again, is to help them make more money from their primary natural resource, and in this it has succeeded beyond anyone’s expectations.
Recent years have witnessed a marked improvement in the handling of energy wealth, a fact demonstrated by the proliferation of massive development and infrastructure projects, tremendous improvements in areas such as education and healthcare, and by the gargantuan holdings accumulated by some countries’ sovereign wealth funds — Abu Dhabi’s alone, according to some estimates, is thought to control assets in the range of $1 trillion.
In addition, as the oil trade has matured, OPEC has sought to fulfill a regulatory function when possible and to ensure flows of supply and transparency in the petroleum trading system. Its efforts on these fronts flow through numerous channels, including its central role in the International Energy Forum and its support for the Joint Oil Data Initiative.

It undertakes these endeavors despite the risks attached to the heavy investments necessary to ensure the robustness and readiness of the entire supply chain. The maintenance of price levels that justify the running of such risks is a major reason why the world’s economies always have access to the fuel they need. And as OPEC frequently stresses, the sky-high rates for hydrocarbon products in many countries have little to do with its own practices.
Instead, they often stem from factors entirely outside OPEC’s control, including taxes levied in affluent consumer nations, the expansive profit margins of major oil companies based in several of the same countries, speculators who operate there and — it has to be said — the politico-military policies pursued by some Western governments in and around the world’s principal oil-producing region, the Middle East.
Despite OPEC efforts, global energy markets have suffered periodically from a lack of cooperation between the producing nations and the consuming ones, to the detriment of both, but at the same time it is OPEC who has actually done something to alleviate the repercussions of poor cooperation.
Far from being a one-trick pony concerned solely with its own commercial interests, OPEC increasingly attends to the long-term welfare of the consumer nations by, among other things, working for the development of an effective and coordinated energy framework and enabling exchanges on petroleum issues of common interest.
In the past two years, with much of the world economy suffering the after-effects of the global financial crisis, OPEC also was instrumental in limiting the damage and fueling the recovery: it raised output to keep prices reasonable, availed itself of existing spare capacity and accelerated programs for capacity expansion in order to discourage speculation and was always there to facilitate dialogue and cooperation.
After displacing the major international oil companies as the primary determinant of crude production, OPEC and its member states have become key players on the global economic stage. The organization is now a crucial interlocutor with bodies like the G8, the G20, and the European Commission, and it has begun to participate in efforts to combat poverty and environmental degradation.

Oil aid

Across the developing world, the OPEC Fund for International Development (OFID) uses its resources to provide significant financial and other resources to support social and economic projects and to ensure affordable energy prices for the poor. All told, the agency pledged more than $500 million in grants and soft loans over the past year. The scope of these funds ranges from the battle against HIV/AIDS to improving supplies of clean water to emergency humanitarian relief.
As of October 2010, OFID’s cumulative commitments to provide easy credit for public sector entities in less developed countries had reached almost $9 billion, more than $5.4 billion of which had already been disbursed.
On top of this, recent years have also seen OPEC get serious about protecting the environment. As climate change and other green issues have gained their rightful spot on the global agenda, the organization has begun to do its part.

In 2010 alone, for instance, OFID earmarked support for a variety of environmental causes, including grants for the International Conference on Food Security and Climate Change in Dry Areas in Amman, the 3rd Annual Conference of the Arab Forum for Environment and Development in Beirut, organic agriculture training in East Africa and an effort by Green Globe to train 300 campaigners tasked with raising awareness of environmental issues.
While accepting that the global energy mix will change in the coming decades, OPEC has been instrumental in supporting research aimed at reducing emissions in the here and now, especially carbon capture and sequestration technologies pioneered at the In Salah operation in central Algeria. It also has adopted active roles in multilateral groupings, including the World Bank’s Global Gas Flaring Reduction Partnership, as well as the International Energy Agency’s Greenhouse Gas Research and Development Program.
For the positive socioeconomic influences it exerts on today’s world, and for all of the prescient preparations it has begun to make for tomorrow’s — including measures to mitigate the effects of its members’ lifeblood — the group deserves some credit. Provided it gets better at explaining itself, it might even receive a few long-overdue cheers when its Diamond Anniversary rolls around in 2020.

February 2, 2017

My purpose here is to update you on progress at the eastern end of the Mediterranean – namely some new steps taken by the government of Lebanon to gets its nascent energy sector off the ground.

As you may recall, Lebanon has wasted a lot of time in the past few years. Cyprus recently held its third licensing round, and others have gone even further: Israel, for instance, is already drilling, and while internal legal and policy battles have slowed some aspects, Israeli negotiators have aggressively pursued export or transit deals with other countries – including both Jordan and Turkey.

In Lebanon, things have been very different. A long-running political struggle left the presidency vacant for more than two years, the Parliament granted itself two extensions totaling almost three years without new elections, and the Prime Minister and Cabinet served in a de facto caretaker capacity because of widespread perceptions that they lacked legitimacy.

Even before this breakdown of the constitutional order, rival political camps were so mistrustful of one another – and so evenly matched – that little headway could be made because ach side blocked the other’s initiatives.

Luckily, even with these paralyzing conditions in effect, some preparatory steps were taken. The Lebanese Petroleum Administration was established in 2012, and while dysfunctional politics delayed everything from the onset of its legal authority to the recruitment of qualified personnel, the LPA managed to lay much of the necessary groundwork. The idea was that once the politicians stopped bickering, all of the rules, regulations, and policies would already be in place, so the country would have the wherewithal to start playing catch-up.

I’m happy to report that there has been significant improvement. A new president has now been elected by Parliament, and his genuine support – both in the legislature and among the general population – is more broad-based than many of his predecessors. A new Prime Minister has also been installed, and since this was part of the same deal that allowed the presidency to be filled, he and his Cabinet enjoy relatively strong acceptance. Perhaps most importantly, the long-delayed parliamentary elections are due to be held in June, and while the usual debate is taking place about the rules under which those polls should take place, there is general optimism that they will be held “on time”.

Best of all, the Lebanese Petroleum Administration has taken this momentum as a signal to start activating the energy sector. Last month it took a decisive step in this direction by initiating the country’s first licensing round, inviting bids for offshore exploration in five of the 10 blocks it has delineated in Lebanon’s Exclusive Economic Zone (EEZ). Nonetheless, the process will not be a simple matter of “plug and play”, but this time the obstacles are external.

Again, the LPA has done a lot to make sure all the necessary mechanisms are in place or ready for installation, including tender procedures and draft terms for the fiscal regime. And at least two of the five blocks being licensed should be relatively straightforward: Block 4 lies entirely within Lebanon’s EEZ, directly off the coast, and Block 1 lies in the northwest corner of Lebanon’s EEZ, where its demarcation has already been agreed with both Cyrus and Syria. Those interested in these blocks will know exactly what they’re bidding on, and the successful bidders and their partners free to get on with the business of modern exploration work without other distractions.

Blocks 8, 9, and 10, on the other hand, are a different matter altogether because all three are in the south, where Lebanon’s maritime claims overlap with those of Israel. At issue is a relatively small area of about 840 square kilometers, less than 5% of Lebanon’s EEZ and an even smaller slice of Israel’s. Under normal circumstances, the conflicting claims would likely have been negotiated away with relative ease, but Lebanon and Israel have no diplomatic relations and have remained in a legal state of war – with frequent outbreaks of actual hostilities – for almost 70 years despite the 1949 armistice.

The situation is not irrecoverable, however, and both the United States and the United Nations have worked hard to broker a consensus by holding separate talks with Israeli and Lebanese officials. What is more, whatever the intractability of their other differences, on this score at least both sides have a clear and compelling interest in avoiding any kind of conflict that interferes with the development of their energy reserves. All of the region’s emerging producer countries stand to make substantial revenue gains, allowing game-changing investments in health, education, transport, and other areas whose impact will be felt for decades, even centuries.

It all comes down to mathematics: there is simply too much money at stake, meaning that in addition to the lives that would inevitably be lost, the direct financial and opportunity costs of another armed confrontation would be exponentially greater than the price-tags attached to bombs and missiles.

The numbers don’t lie, so there is reason for optimism that the EEZ issue will be resolved before it impedes exploration activities. In addition, if and when cooler heads prevail and some kind of understanding on indirect cooperation (or even non-interference) is reached, the resulting dividends will go far beyond Dollars, Euros, Pounds or Shekels – and the effects will be felt far beyond the Mediterranean.

Cheap, clean, and reliable natural gas supplies from the Eastern Med would also significantly enhance energy security for Turkey, the European Union, and other countries. For Europe in particular, it would be a new lease on life, restoring the competitiveness of the Continent’s economy and providing consumers with lower prices for energy and a long list of other goods and services. And for both the MENA region and other parts of the world haunted by conflict or the threat thereof, an East Mediterranean gas boom made possible by sober diplomacy would set an encouraging – and highly lucrative – precedent.

These manifold and far-reaching benefits mean that numerous local and outside actors will want the same thing in the Eastern Med: stability. Cyprus, for instance, figures to be a linchpin for the entire regional gas economy, but it can only play that role to the fullest if it achieves reunification after more than 40 years of division. Each of the main external players on the island – Britain, Greece, and Turkey – also has good reason to want tensions reduced, and Russia’s growing presence in the region (including investment offshore each of Cyprus, Syria, and Egypt) gives it a vested interest in a more predictable region. American companies are also present, and literally no one better understands what is at stake than the incoming US secretary of state, former ExxonMobil boss Rex Tillerson.

Of course, there is still much for Beirut to address, including the structure and management of an effective and transparent Sovereign Wealth Fund to safeguard future energy revenues. There is also the matter of determining the true size of its offshore treasure, but all signs from exploration under way off Cyprus and Israel – plus the discovery of Egypt’s massive Al-Zohr gasfield – suggest that Lebanon is on the verge of a historic windfall. In fact, some 2-D and 3-D studies already indicate that the country’s hydrocarbon potential outstrips those of its immediate neighbors.

At this point, all Lebanon needs to do is play its cards right: avoid unnecessary confrontations with Israel, follow international best practice for safe and environmentally responsible oil and gas development, and protect the ensuing revenues against nepotism, waste, and other forms of mismanagement. So long as it makes itself a stable platform, investment will come and a better future will almost certainly follow.

Lebanon is finally getting serious about developing its offshore oil and gas reserves thanks to a reduction in domestic political tensions, a senior industry veteran told a high-profile energy conference in Athens on Thursday.

“There has been significant improvement,” said Roudi Baroudi, CEO of Qatar-based Energy and Environment Holding (EEH), an independent consultancy.

Speaking at the Athens Energy Forum, which attracted a long list of political and industry leaders from Greece and other E.U and Middle East countries, Baroudi said major obstacles had been removed in recent months and that more progress was in the offing.

“A new president has now been elected by Parliament, and … a new prime minister has also been installed,” he reminded the audience, adding that both officials enjoyed strong public acceptance. “Perhaps most importantly, the long-delayed parliamentary elections are due to be held in June.”

Many Lebanese institutions have been hamstrung by years of infighting among rival political camps, causing the country to fall behind neighbors like Cyprus and Israel in getting its nascent energy sector up to speed. Conditions for progress look much better now, Baroudi said, explaining that much of the credit was due to the Lebanese Petroleum Administration (LPA) established in 2012.

“Luckily, even with these paralyzing conditions in effect, some preparatory steps were taken,” he explained. “The LPA managed to lay much of the necessary groundwork. The idea was that once the politicians stopped bickering, all of the rules, regulations, and policies would already be in place, so the country would have the wherewithal to start playing catch-up.”

In fact, he said, both “2-D and 3-D seismic geology studies, as well as high-tech airborne acquisition surveys, already indicate that the country’s hydrocarbon potential outstrips those of its immediate neighbors.”

Now that the political log-jam is breaking up, Baroudi noted, the LPA has begun to act in other ways as well.

“Last month it took a decisive step … by initiating the country’s first licensing round, inviting bids for offshore exploration in five of the 10 blocks it has delineated in Lebanon’s Exclusive Economic Zone,” said Baroudi, who has worked in the energy industry for over 30 years.

Nonetheless, “the process will not be a simple matter of ‘plug and play’” because apart from continuing fears about transparency, Lebanon also would need to sort out a maritime boundary dispute with Israel.

“Both the United States and the United Nations have worked hard to broker a consensus by holding separate talks with Israeli and Lebanese officials,” he told the forum. “Whatever the intractability of their other differences … [Lebanon and Israel] have a clear and compelling interest in avoiding any kind of conflict that interferes with the development of their energy reserves.”

“It all comes down to mathematics,” Baroudi argued. “There is simply too much money at stake, meaning that in addition to the lives that would inevitably be lost, the direct financial and opportunity costs of another armed confrontation would be exponentially greater than the price-tags attached to bombs and missiles.”

In addition, he said, the benefits of an East Mediterranean energy boom would serve the interests of Turkey, the European Union, and various extra-regional actors, increasing outside support for negotiated solutions on both the Libano-Israeli front and the issue of Cyprus reunification.

“Numerous local and outside actors will want the same thing in the Eastern Med: stability. Cyprus … figures to be a linchpin for the entire regional gas economy, but it can only play that role to the fullest if it achieves reunification,” said Baroudi.

“Each of the main external players on the island – Britain, Greece, and Turkey – also has good reason to want tensions reduced, and Russia’s growing presence in the region, including investment offshore each of Cyprus, Syria, and Egypt, gives it a vested interest in stability.

American companies are also present, and literally no one better understands what is at stake than the incoming US secretary of state, former ExxonMobil boss Rex Tillerson.”